Number of Shares

[Spoiler]

I'll shortly be incorporating a new ltd for plan B. Visited an accountant last week, and they seem fine for my accountancy requirements but I baulked at the £375 company formation charge. Looking around, I've found an on-line formation (has been recommended on here previously) that'll do it for £18.

Now - the one question I have is around the number of shares to allocate - there will be 3 shareholders, with a 45/45/10 shareholding percentage. So, for me issuing 100 shares would seem to fit. However, my colleague wants to issue something like 1 million shares so down the line we can hand out share options.

I'm thinking this is something we can worry about later on if/when it's needed, by issuing more shares. I'd rather keep it simple at the start.

Also, I've just been reading about "Issued share capital" which states on one website: "It is worth remembering that issued shares must be paid for at some stage, not necessarily immediately, bit in the future. If you decide to issue GBP1,000,000 shares to a subscriber then that person must pay the company GBP1,000,000 at some stage."

I don't fancy having to pay £450k under my colleague's proposal. I'm happy to pay £45 under mine!

[Clare@InTouch]

You should pay for the shares you own, so £1 million would lead to a large overdrawn DLA! I'd stick with 100, as you say you can always increase it later.

[Sally@InTouch]

I'll shortly be incorporating a new ltd for plan B. Visited an accountant last week, and they seem fine for my accountancy requirements but I baulked at the £375 company formation charge. Looking around, I've found an on-line formation (has been recommended on here previously) that'll do it for £18.

Now - the one question I have is around the number of shares to allocate - there will be 3 shareholders, with a 45/45/10 shareholding percentage. So, for me issuing 100 shares would seem to fit. However, my colleague wants to issue something like 1 million shares so down the line we can hand out share options.

I'm thinking this is something we can worry about later on if/when it's needed, by issuing more shares. I'd rather keep it simple at the start.

Also, I've just been reading about "Issued share capital" which states on one website: "It is worth remembering that issued shares must be paid for at some stage, not necessarily immediately, bit in the future. If you decide to issue GBP1,000,000 shares to a subscriber then that person must pay the company GBP1,000,000 at some stage."

I don't fancy having to pay £450k under my colleague's proposal. I'm happy to pay £45 under mine!

Hi Spoiler

As there are three shareholders, due to allocating dividends it maybe worth considering alphabet shares A,B and C instead of ordinary shares. This will give you control over who receives a dividend and how much, rather than each of you having your allocated amount every time one is distributed.

Generally, we incorporate 100 ordinary shares valued at £1 each. The shareholding represents the limited liability of that officer, so if you had a million shares, firstly (as you rightly stated) you owe the company that amount, and secondly that is the amount someone could "come after you" if the business failed.

It's probably worth taking some professional advice first!

[Nixon Williams]

I would go with the general advice of say 100 shares.

However, if you all decide you do want 1 million shares, you could class them as £0.01 shares so that the total to be paid is £10,000, instead of £1 million.

Classify them as £0.001 shares and the funds payable falls to £1,000.

Having provided that as an option for you, I would strongly recommend the 100 shares route.

Alan

[Spoiler]

Thanks for the quick responses - I'm happy to go down the 100 shares route.

I'll have a look at the alphabet shares, but I expect we'll all be getting a dividend relevant to the shareholding percentage (45/45/10).

Thanks.

[Sally@InTouch]

Thanks for the quick responses - I'm happy to go down the 100 shares route.

I'll have a look at the alphabet shares, but I expect we'll all be getting a dividend relevant to the shareholding percentage (45/45/10).

Thanks.

That will work when you all bring in the same revenue and have the same expenses. This rarely happens in reality and can be the start of a decline of a once good relationship.

I have seen more business partners fall out with this arrangements, than succeed.

[ASB]

Surely it can be incorporated with any number deemed suitable and only 100 issued ?

The remaining shares being alloted as options or whatever at some future date with the appropriates adjustments then madeto the share premium accounts.

[Spoiler]

That will work when you all bring in the same revenue and have the same expenses. This rarely happens in reality and can be the start of a decline of a once good relationship.

I have seen more business partners fall out with this arrangements, than succeed.

Fair point - but we are starting a business - selling product, providing value-add services. We've agreed on a payment structure, essentially we'll all be working for the good of the business in some form, and the only caveat we've placed on money is that we must be getting paid shed loads at some point in the future.

We're definitely not a couple of pseudo permies looking to save a few hundred quid on accountancy fees by running everything through one Ltd. If either of us have to take on anything like a short-medium term contract, we've failed.

[Clare@InTouch]

Fair point - but we are starting a business - selling product, providing value-add services. We've agreed on a payment structure, essentially we'll all be working for the good of the business in some form, and the only caveat we've placed on money is that we must be getting paid shed loads at some point in the future.

We're definitely not a couple of pseudo permies looking to save a few hundred quid on accountancy fees by running everything through one Ltd. If either of us have to take on anything like a short-medium term contract, we've failed.

I'd look into a Shareholders' Agreement, just in case. It helps to set out what happens with profits, or when partners leave, or the worst happens - what happens if someone dies, or get seriously ill? You may trust your partners, but do you trust the people their shares would be passed to? Are there any pre-emption rights over the shares?

[Spoiler]

I'd look into a Shareholders' Agreement, just in case. It helps to set out what happens with profits, or when partners leave, or the worst happens - what happens if someone dies, or get seriously ill? You may trust your partners, but do you trust the people their shares would be passed to? Are there any pre-emption rights over the shares?

Agreed - We have a lawyer we've already used for other (employment) contractual stuff and will be getting a shareholder agreement done. He's sent us over a document with questions we need to answer, similar to what you've suggested.